To start a nonprofit in Texas, you file a Certificate of Formation with the Texas Secretary of State for $25, appoint an initial board and registered agent, adopt bylaws, get a federal Employer Identification Number, apply to the IRS for 501(c)(3) recognition, and then apply separately to the Texas Comptroller for state tax exemptions. The IRS user fee is either $275 or $600 depending on the application form. The state and federal steps are separate, and each one builds on the last, so completing them in order keeps your filings from getting rejected or delayed.
Pick a Name and Check Availability
Your nonprofit’s name has to be distinguishable from every other entity already on file with the Secretary of State. You can search the state’s records and confirm availability through the SOSDirect portal before filing anything.1Office of the Texas Secretary of State. Filing Options If you want to hold a name while you finish organizing, you can reserve it, though reservation is optional. Settling on a clear name early avoids a rejected Certificate of Formation later.
Line Up Your Board and Registered Agent
Texas requires at least three directors on the initial board of a nonprofit corporation. Directors are not required to live in Texas or be members of the organization unless your governing documents say so.2State of Texas. Texas Business Organizations Code Chapter 22 – Nonprofit Corporations The number of initial directors, along with each director’s name and address, has to appear in the Certificate of Formation.3State of Texas. Texas Business Organizations Code Section 3.009 – Supplemental Provisions Required in Certificate of Formation of Nonprofit Corporation
You also need a registered agent: a Texas resident or a business entity authorized to do business in Texas who agrees to accept legal papers on the nonprofit’s behalf. The registered office must be a physical Texas street address where the agent can be served during business hours. A P.O. Box at a commercial mail service does not count unless that commercial enterprise is itself the registered agent.4Texas Secretary of State. Registered Agents The agent can be one of your directors, another individual, or a professional registered agent service, which typically costs between $35 and $400 per year.
File the Certificate of Formation
The Certificate of Formation is what actually creates the nonprofit under Texas law. You file it on Form 202, available from the Secretary of State.5Texas Secretary of State. Business and Nonprofit Forms Form 202 asks for the entity name, the registered agent’s name and Texas address, the number and identity of the initial directors, a purpose clause, the duration (usually perpetual), the incorporators, and a statement about whether the corporation will have members and, if so, whether management is vested in them.3State of Texas. Texas Business Organizations Code Section 3.009 – Supplemental Provisions Required in Certificate of Formation of Nonprofit Corporation
If you plan to seek 501(c)(3) status, write the purpose clause narrowly. Limit it to exempt activities such as charitable, religious, educational, or scientific work.6Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. Also include a dissolution clause stating that any remaining assets will be distributed to another 501(c)(3), the federal government, or a state or local government for a public purpose. The IRS requires this language in your governing document as part of its organizational test.7Internal Revenue Service. Organizational Test Internal Revenue Code Section 501(c)(3) Adding it now saves you from amending the certificate later.
The fastest way to file is online through SOSDirect. You can also mail Form 202 to the Secretary of State at P.O. Box 13697, Austin, Texas 78711.1Office of the Texas Secretary of State. Filing Options The fee is $25, paid by credit card online or by check or money order with a mailed form.8Texas Secretary of State. Business Filings and Trademarks Fee Schedule When your filing is processed, you receive a file-stamped copy of the Certificate of Formation. Keep it in your permanent records; you will need it for the IRS and the Comptroller.
Adopt Bylaws and a Conflict of Interest Policy
Once the corporation exists, the board adopts initial bylaws. Texas law requires this, and the bylaws function as the organization’s internal rulebook.2State of Texas. Texas Business Organizations Code Chapter 22 – Nonprofit Corporations The IRS does not dictate specific bylaw language for most groups, but it advises having clear internal rules, and the bylaws are where you set your annual accounting period.9Internal Revenue Service. Exempt Organization Bylaws If your nonprofit will have members, the bylaws or Certificate of Formation have to identify each class of members, how they are elected or appointed, and their qualifications and rights.
The IRS also encourages every 501(c)(3) to adopt a written conflict of interest policy. It should require directors and staff to act in the organization’s interest, describe how conflicts are identified, and set out what happens when one is found. Form 990 asks directly whether your organization has such a policy and whether it enforces compliance.10Internal Revenue Service. Good Governance Practices – 501(c)(3) Organizations Adopting one now strengthens your exemption application and signals good governance to funders.
Get a Federal Employer Identification Number
Before you apply for tax exemption, the nonprofit needs an EIN. This nine-digit number identifies the organization with the IRS and is required to open a bank account, hire employees, and file returns, even if you have no staff yet. The IRS requires that the entity be formed with the state before you apply for the EIN.11Internal Revenue Service. Employer Identification Number
The IRS online application at irs.gov issues an EIN immediately. You can also fax or mail Form SS-4, but those routes take longer.11Internal Revenue Service. Employer Identification Number There is no fee.
Apply for 501(c)(3) Status
Federal tax exemption is not automatic. You apply for it by filing IRS Form 1023 or the streamlined Form 1023-EZ, both submitted electronically through Pay.gov.12Internal Revenue Service. About Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code The user fee is $600 for Form 1023 and $275 for Form 1023-EZ.13Internal Revenue Service. Form 1023 and 1023-EZ Amount of User Fee
Form 1023 or Form 1023-EZ
Form 1023-EZ is shorter and cheaper, but not every organization qualifies. To use it, your nonprofit must have (or reasonably project) annual gross receipts of $50,000 or less in each of the past three years and the next three years, and total assets with a fair market value of $250,000 or less.14Internal Revenue Service. Do You Have the Required Financial Information Work through the Form 1023-EZ Eligibility Worksheet in the instructions to confirm you qualify. If you don’t, file the full Form 1023.
The 27-Month Rule
Timing shapes when your exemption starts. If you file within 27 months from the end of the month your organization was formed, the IRS can recognize the exempt status retroactively to the date of formation. File after that window and exempt status generally begins only on the filing date.15Internal Revenue Service. Form 1023 Purpose of Questions About Organization Applying More Than 27 Months After Date of Formation
Public Charity or Private Foundation
Every 501(c)(3) is classified as either a public charity or a private foundation. The IRS presumes a new organization is a private foundation unless the application shows otherwise.16Office of the Law Revision Counsel. 26 USC 508 – Special Rules With Respect to Section 501(c)(3) Organizations Most nonprofits that draw broad public support qualify as public charities, which face fewer restrictions.17Internal Revenue Service. Determine Your Foundation Classification Both Form 1023 and Form 1023-EZ include questions that establish the classification.
When the IRS approves your application, it issues a determination letter. Keep it. Foundations and individual donors typically require a copy before making grants or tax-deductible contributions.18Internal Revenue Service. Application for Recognition of Exemption
Apply for Texas State Tax Exemptions
Federal exemption does not carry over to Texas taxes. You have to file a separate application with the Texas Comptroller of Public Accounts, and the correct form depends on your organization’s type:
- Charitable organizations: Form AP-205
- Educational organizations: Form AP-207
- Religious organizations: Form AP-209
- Organizations relying on other federal 501(c) exemptions: Form AP-204
Charitable organizations filing AP-205 can seek exemption from sales tax, franchise tax, and hotel occupancy tax.19Texas Comptroller of Public Accounts. Form AP-205, Application for Exemption – Charitable Organizations Religious organizations filing AP-209 are eligible for franchise tax, sales tax, and state hotel occupancy tax exemptions. Organizations qualifying solely on the basis of their federal exempt status through Form AP-204 are not exempt from hotel occupancy tax.20Texas Comptroller of Public Accounts. Guidelines to Texas Tax Exemptions
Whichever form you use, the Comptroller wants a copy of your IRS determination letter along with your formation documents, and the organization name on the IRS letter must match the legal name on your Certificate of Formation.19Texas Comptroller of Public Accounts. Form AP-205, Application for Exemption – Charitable Organizations Once approved, you receive a Texas exemption letter you can present to vendors to avoid paying sales tax on qualifying purchases. Nonprofits granted a Comptroller exemption do not have to file franchise tax reports, including the Public Information Report.21Texas Comptroller of Public Accounts. Exemptions – Franchise Tax Frequently Asked Questions Until the exemption is granted, you have to keep filing franchise tax reports.
Keep Up With Annual Filings
Federal exemption comes with an annual return. The form depends on size: Form 990-N (the e-Postcard) for organizations with gross receipts normally $50,000 or less; Form 990-EZ for those with gross receipts under $200,000 and total assets under $500,000; and Form 990 for organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more.22Internal Revenue Service. Instructions for Form 990 Return of Organization Exempt From Income Tax Small organizations still have to file the e-Postcard every year. If your nonprofit misses its required return or notice for three consecutive years, the IRS automatically revokes tax-exempt status under Section 6033(j), and getting reinstated means filing a new application and paying the user fee again.23Internal Revenue Service. Automatic Revocation of Exemption
On the Texas side, the Secretary of State can require your nonprofit corporation to file a periodic report listing current directors and officers. The state can request this no more than once every four years, and the filing fee is $5. Ignoring the request can lead to involuntary termination of the corporation after notice.24Texas Secretary of State. Form 802 General Information – Periodic Report Watch for correspondence and respond promptly.
One boundary worth noting: Texas does not have a broad charitable solicitation registration law, so most nonprofits can solicit donations in Texas without registering first. Specific categories do have to register — law enforcement organizations that solicit by telephone, public safety organizations, and veterans organizations — with either the Office of the Attorney General or the Secretary of State.25Office of the Texas Attorney General. Registration and Filings If you plan to solicit in other states, many of them do require registration before you contact their residents.26Internal Revenue Service. Charitable Solicitation – State Requirements